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Politics

Apr 21, 2017

Why a universal basic income is a terrible idea

A "universal basic income" is often promoted as a solution for inequality, but it would actually make things worse, writes Labor MP for Fenner and Shadow Assistant Treasurer Andrew Leigh.

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Using social policy to reduce inequality is almost precisely the opposite of the suggestion that Australia adopt a “universal basic income”. Here’s an illustration of how that might work out. Suppose we got rid of all our current cash transfers and replaced them with a flat-rate universal basic income. Current spending would support a payment of around $6000 per person.

Every millionaire and billionaire would be thousands of dollars better off. But every pensioner would be in abject poverty — barely able to buy food, let alone pay their bills. Australia’s social safety net reduces inequality by 10 Gini points, while a universal basic income — by design — has zero impact on inequality. So scrapping the social safety net in favour of a universal basic income would increase the Gini by 10 points — making Australia as unequal as Latin America.

Some argue that a universal basic income should be paid for by increasing taxes, rather than by destroying our targeted welfare system. But I’m not sure they’ve considered how big the increase would need to be. Suppose we wanted the universal basic income to be the same amount as the single age pension (currently $23,000, including supplements). That would require an increase in taxes of $17,000 per person, or around 23 percent of GDP. This would make Australia’s tax to GDP ratio among the highest in the world.

So next time someone advocates a universal basic income, ask them how they’d like to pay for it: by making Australia the most unequal country in the world, or by making Australia the most highly-taxed country in the world.

Andrew Leigh is the Shadow Assistant Treasurer. This is an extract of a speech delivered at the Australian National University on 20 April 2017, titled “How Can We Reduce Inequality?

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32 comments

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32 thoughts on “Why a universal basic income is a terrible idea

  1. Duncan Gilbey

    Closing existing tax loopholes could go a fair way towards it. I’m surprised that the Shadow Assistant Treasurer didn’t mention that (but why bother looking at possible solutions when the decision has apparently already been made).

    1. drsmithy

      What’s more surprising is apparently the “Shadow Assistant Treasurer” thinks taxes fund Federal expenditure.

  2. Eva Cox

    What amazing crap from someone who is an economist with a social doctorate. there are many ways to offset the costs eg cut super tax concessions and offer a universal aged pension, which improves gender equity and even may produce a surplus. This is an emotive response from someone who is over-reacting to the idea that maybe recognising non paid work contributions may undermine the workers ‘ party

    1. AR

      Eva – I don’t find it all amazing, given that economics is the most useless of all disciplines.
      All sorts of pretty models & beautiful numbers which bear no relation whatsoever to the real world.
      In medicine it would be described as the treatment was a success but the patient died. Horribly & painfully.

  3. Eva Cox

    What amazing crap from someone who is an economist with a social doctorate. There are many ways to offset the costs eg cut super tax concessions and offer a universal aged pension, which improves gender equity and even may produce a surplus. This is an emotive response from someone who is over-reacting to the idea that maybe recognising non paid work contributions may undermine the workers ‘ party
    NB crikey this is not a duplicate

  4. Justin

    I’m not necessarily sold yet on the idea of a basic income. But this opposing argument was a weak one. It seems to essentially boil down to this fact: a basic income would need to be paid for by high taxes.
    But so what? If everyone had enough money to live, and worked for passion, fun, or to earn extra money on top of a living wage, who cares if we are taxed 50-60% for that wage? the tax wouldn’t impact anyone’s health because we already have enough money to live.

    There are two real questions that old mate Leigh doesn’t even consider:
    (1) what proportion of the current working population would still work, even if they didn’t need to in order to live? The proportion would have to be large enough to sustain the population.
    (2) how do we work out what a “basic wage” is. I wouldn’t go by the aged pension. 23k a year barely covers living expenses if you rent.

    1. Draco Houston

      Point 1 is moot because there are not enough jobs. What the currently employed do when given their meager stipend is irrelevant, there is a mass of unemployed people who would otherwise be working before UBI, and there would still be so after UBI.

      Which begs the question, who are you going to tax? The problem is only going to get worse, regardless of if workers decide they’d rather be on the dole than get paid a decent wage (btw no one does this)

      1. Justin

        I suppose my phrasing was unclear. Under a UBI system, the proposition is that not everyone needs to have a job, because they’d have enough money to live anyway. So the need for there to be “jobs for everyone” doesn’t apply in such a system. The high taxes would only be applied to those lucky enough to have a job, and then only their “extra” income would be taxed at a high rate.

        I agree most people on unemployment benefits are not there by choice. Especially when you consider the abs stats, that show an estimated 75k jobs available in feb but more than double that of people looking for work within the same measurement period. But I imagine you are saying that, since job availability is shrinking, it’ll continue to shrink to the point that even a UBI system would be unable to cope with the number of work opportunities available?

        1. Draco Houston

          Yeah that is pretty much what I am saying. It doesn’t seem like a permanent solution, and personally I find it lacking as a temporary solution. The center-left ideal version has to pass in full for it to not be a loss for the unemployed. If that passes workers end up being taxed much more to have it passed back to them. who benefits from this other than the employer, who now has a principle of a wage being Extra Income and not the means of subsistence?

          We could be asking for welfare reform to cut red tape for recipients and refocus the bureaucracy on more important things like finding cash in hand workers and their law breaking employers.

          We could be asking for a lower work week. 32 hours would be 1 day less work, raising wages and creating jobs. A more radical cut to 15 hours or less could restructure peoples work lives into something that makes sense. Imagine 3 shifts of 5 hours and yet you’re paid like you worked 5 shifts of 8? A lot of unproductive businesses would have to close down with wages like that, but really, why keep them? Let’s extend the good work to as many as possible.

          We could even be ambitious and ask for the end of paid work, of wages, salaries, and cash transfers. Where a community of free producers can share the necessary work and do whatever they want with the rest of the time. Giving their surplus to a global association of free producers, giving within their abilities and receiving to their needs. This has about as much chance of getting up as welfare that ends the need for wage labour, so why not go big?

      2. Woopwoop

        Yes, but there are jobs nobody would do unless it was financially worth their while, aren’t there?

    2. drsmithy

      There are two real questions that old mate Leigh doesn’t even consider:

      Even more importantly:

      Within two generations – three at the outside – something like half the population will be literally unemployable. Not because they lack skill or motivation, but because there is nothing they can do that a compute or robot can’t do faster, better and cheaper.

  5. Eva Cox

    Sorry didn’t realise it had gone, but reading it twice is not disastrous. The idea of a UBI is worth discussing, not dismissing, given the mess of the welfare system. Andrew should focus on rejecting the useless Cashless Welfare Card that is being promoted by Twiggy but fails to address issues like the Income Management programs in the NT it closely resembles. And getting rid of both would save money or replace them with a UBI at less cost and damage to self esteem.

  6. Draco Houston

    I like to bring up current targeted welfare whenever some UBIer quotes some number for what the payment would be annually. Usually their number is worse than the normal adult dole without additional loadings, for little things like not letting your children starve to death, putting a roof over your head etc.

    UBI does nothing for the unemployed, it will not have the effect of freeing people from work like many center-left people claim. It subsidizes wages on the public purse, paid for by you, me, and everyone. You might as well just make cash in hand off the books work legal, it’d have the same effect.

  7. Brett D. Wright

    Andrew Leigh is not sure how big a tax rise the advocates of a UBI are seeking, and it’s obvious from his examples he’s not much interested in finding out. When Leigh says a UBI equal to the age pension would make Australia the most highly taxed country in the world, what he means to say is that our tax to GDP ratio, currently among the lowest in the OECD, would rise to the level presently endured (or enjoyed) by Denmark and Sweden. But this is a straw man’s argument. A more modest tax rise – say, to fund a UBI of $6000, on top of the current cash transfer – would increase our tax to GDP ratio to that of those notoriously socialist utopias, Spain and the UK, both OECD countries with a similar economic role for government as Australia and with similar government spending to GDP ratios. I don’t necessarily agree with the idea of a UBI but surely it’s a debate worth having with more genuine intent than that displayed by this leading economist turned Labor politician.

  8. Roberta Stewart

    Andrew Leigh has failed to take into account that a UBI is not necessarily financed by specific or regimented economic model. He is arguing a point that has not been made or set out essentially. In order for a UBI to be implemented here is would have to supported by supplementary policies and those who are more dependant than others (the elderly and unwell) would require supplementary means tested benefits on top of a UBI payment. It appears he has only reviewed the concept at a glance.

  9. Wayne Cusick

    Surely a Universal Basic Income is not to tackle inequality but to support people of the future whose prospects of getting a job, any job, will be greatly diminished by technology?

  10. Dog's Breakfast

    Well, I’m sure that Andrew went on to say some more sensible things, but I’m a bit disappointed in the linear thinking both here and in the comments section.

    Bugger $6K a year, what’s the point. Go for gold – Set it at $40K to $45K for all over 18’s, completely break the system down.

    High tax rates once you start working – sure would be. Disincentive to work – really, only if you believe that people work because they need money, and once they have the money incentive taken out they will all just sit on their arses. Remove the incentive of money and people may just do useful things rather than the vast and overpaid crap that most of us spend our time on. I would be looking at setting the tax rates for paid work such that you would work out about square around $80k above the $40K UBI (equivalent to current rates at $120K income) Everyone earning over that gets taxed hard because the marginal levels are set high. Companies pay real taxes, the tax act simplified, Cayman Islands accounts banned, trusts restricted to the very few real cases they are needed, multi-nationals paying tax, a Tobin tax. Christ, the cupboard isn’t so much bare as overflowing for anyone with the imagination.

    Possible result – very few people around to do all those high paying gigs – what’s the point with those high tax rates!

    Consequence, the vast majority of people earning big money today are not the creators, the manufacturers, the builders and the makers, they are bloody technocrats that we won’t know are gone. Very few add a scintilla of value at all those meeting they go to. CEO’s and chairs and board members will have to do it for the prestige and because they like it. The majority, realising that they lead worthless lives and the recompense reflects that, move into doing something useful – picking up rubbish at local parks, land care, environmental renewal, talking to their neighbours and bringing up their kids.

    God, how awful it could all be.

    Company tax rates wouldn’t have to be set much higher than currently, just close all the bloody loopholes, including writing off legal and accounting services as a tax deduction.

    Yeah, I know, but that’s different. It’s also non-linear, it also opens up infinite possibilities, it also doesn’t need to be perfect immediately, it’d probably take a generation for it to bed in, with older people wringing their hands the most. Boy, you’re right though, everything is working so perfectly now, we’d really be taking a great risk!!! (Sarcasm, or irony, I can’t be sure)

    Start with DrSmithy’s clarification that taxes aren’t actually there to fund Federal expenditure, and then go to town.

    How will it work out? I don’t really know, but can you think of a more useless technocratic society than what we have today? This is not the best of all possible worlds, what we have today is probably the worst and least efficient society we could possibly we with all the advantages at our disposal.

    And introduce Nicholas Gruen’s people’s bank – that’s the first order of business.

    As Aretha Franklin says, “Think!”

  11. old greybearded one

    I have a question for you Mr Leigh. In a world where robotisation, offshoring of jobs and and ALP filled with tossers and flunkies who stand for nothing, what IS your solution? I cannot see where we get jobs for the youth of today, because every new technology is about taking jobs away. I have watched the great neoconjob strip good jobs out of the country, flog our services off to crooks, close our factories and replace good products with Chinese rubbish that endangers our citizens (ask a welder how good the steel is). We ask people to pay high rents when they don’t make enough, overseas companies are allowed to basically steal our resources thanks to both major parties, and you say this is not the solution. What is?

    1. Draco Houston

      Yeah, this is a good point and probably the best comment made so far. What now, ALP? Tell us how we’re going to live in the future.

  12. AR

    This is a perfect example of why the ALP is so hopeless – a total inability to think beyond the old ways. Beholden to 19thC Protestant B/S that was designed to keep Jack in hs place and not frighten the horses of the rich.
    Others above have dealt with the fact that soon the only jobs that matter will be highly paid & greatly desired and the progressive taxation applied will not be a disincentive.
    Then the rest of us can get on with doing things that really matter like caring for each other, esp the elderly who will an even bigger segment of the population, the sick and the young – automation can do the shit work of digging, delving & making things but only decent people can care.
    Time for a thrusting entrepreneur to set up rock’n’roll retirement homes where the boomers can rage & groove to their hearts’ content with a wide open & well stocked pharmacopeia, young & nubile staff of all genders & proclivities who will be extremely well paid and restricted visiting hours from rapacious, grasping relatives.

  13. bref

    I hope Leigh and others of his ilk can do better than this crap. The game’s already afoot. We already have a society where a great many are under employed and earn barely enough to exist. House prices and rentals are out of control. The cost of basic utilities are out of control. Within a decade most manufacturing will be roboticised, within 2 decades all driving jobs will disappear: trucks, taxis, the lot. Its often said that new jobs will emerge, but I think, this time, the changes will happen so quickly that the world won’t have time to catch up. Millions of Australian jobs will disappear within 20 years, how do we cope with that?

  14. john amadio

    Would a ‘sliding scale’ work so that a universal basic income would cut out at a specific field income/asset level or would it be too much of an incentive not to have any income? Surely closing loopholes, ensuring companies pay their fair tax, more equitable super concessions etc. why are some countries seriously considering it? Less money spent on monitoring, enforcement etc would have to save a hell of a lot of money.

  15. Xoanon

    Surely with a UBI you highly tax companies, who after all are profiting from automation massively reducing their expenses. And yes, close every tax loophole known to man, and institute things like a Tobin tax which would promote stability in financial markets.

    As to the amount, I’d say a UBI of $30k per person would work. Enough to live on, but low enough that many people would still want to work to top it up.

  16. Kevin Cox

    A basic income can be thought of as a way to supply money to people to participate in Society. We need better ways for people to obtain money so it does not have to be redistributed. One way is to give all people a share in the value transfer of goods and services instead of the value only going to those who use it. One way to start is to give everyone a share in the value transfer involving public goods where those who receive less of the public goods get more money in compensation. If a person uses water they get the value they pay for the water. Those who don’t use as much water could get money in compensation but they can only use the money to invest in ways to increase other public goods – including water – and earn money from the investment. The investment money would come from a part of the profit from water. This way is more equitable and will gradually evolve into a system where those who have less get more and invest to get even more while not interfering with the value obtained by those benefiting from the use of common goods. Water is a good place to start because it is in government control but the principle can evolve to apply to all goods and services including the very costly financial services.

  17. Kim Colbourne

    “So next time someone advocates a universal basic income, ask them how they’d like to pay for it: by making Australia the most unequal country in the world, or by making Australia the most highly-taxed country in the world.”
    My answer is b. Because it’s more likely to be collected as tax from corporations, rather than, just a hypothetical, false debts collected from people living under the poverty line by Centrelink.

  18. bref

    Obviously there will have to be a redistribution of wealth of some sort. The answers will probably come from Western Europe as I don’t think our pollies have the smarts or courage to touch this stuff. They have a tendency to follow whatever corporate America does and we know that will lead to disaster…

  19. Graeski

    Arrrrrggghhhh!!!!!

    Ever pro-UBI argument I’ve read concerns projection into a future in which the cost of production has effectively fallen to zero and there are no jobs because everything from manufacturing to distribution to service industries is done by computer. If there are no jobs and no employment, how will people obtain an income? Will we continue on our present path and allow 1% percent of the population to live in incomprehensible luxury while the other 99% of the population literally starves to death?

    This future may or may not come about (class, discuss) but if it does, maybe a UBI might be a better approach …

    Every anti-UBI argument I’ve ever heard involves an economist taking the UBI concept and applying it to current social structures, current work patterns, current technology and current economic settings and reaching the conclusion, “Well you see folks, dat idea will never work.”

    What kind of a lobotomy do you have to undergo to become an economist?

  20. Michael Sharman

    Not sure what world Andrew Leigh lives in but 23% GDP is certainly not the sure tax rate in the world. The crucial point of a universial income scheme is that wealth is redistributed from the richest to the poorest, yes it is costly, but there is nothing wrong about taxation and wealth redistribution (unless you live in a neo-liberal fanstasy world were high taxes are an athema). To illustate my point one needs to look no futher than for example Sweden which has a tax rate of 43.3% of GDP. https://www.oecd.org/tax/revenue-statistics-sweden.pdf.

  21. Mark Gibbons

    You can provide a basic income using the negative income tax model. A negative income tax produces exactly the same outcome as a universal basic income at a fraction of the cost.

  22. PhoenixGreen

    Looks like they’ve deliberately misunderstood the proposal. You have to use the tax system as an effective means test. Take the basic income back progressively as they go up the income and their higher salary begins to replace it. Savings from social service bureaucracy top that up further. Because current social services are well below the poverty level anyway, it’d be best if you start chasing tax dodging companies as well.

    Disappointing that these Labor MPs offer up such a disingenuous response.

  23. Douglas Evans

    I always understood the term universal basic income to mean:
    a. that no-one’s income should be allowed to fall below some pre-determined level in which case those above the cut would not qualify for the handout.
    or
    b. that those below the cut should be adjusted upwards and those above adjusted downwards so that everyone’s income fell within an agreed band.
    Neither of these seem politically likely in the Australia I know. The idea that Universal Basic Income simply means everyone gets an equal share of whatever pile of money is available (as Mr Leigh seems to suggest) strikes me as particularly stupid. Has anyone credible seriously advocated this or is Mr Leigh simply standing up straw men so we can be impressed as he knocks them down?

  24. Peter Hannigan

    Not sure why all the vitriol. A Universal Basic Income in its purest form (everyone gets a set amount of money) is an invitation to entrench inequality and would cost a fortune – and would also be used to reduce wages. It is up there with a flat rate of income tax for favouring the rich. A better approach is to take a negative income tax model (noone should fall below a certain level of income) and then funds would only go to those in need, and it can be more generous and more affordable. Coupled with strong progressive taxation it would go some way to addressing income inequality – but not wealth inequality.

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